Advice to the New Treasury Secretary: Situation Is Bad. Do Something

by Tula Connell, Jun 26, 2006

As Henry Paulson Jr. gets set to take over John Snow’s job as U.S. Treasury Secretary, The New York Times columnist Ben Stein has some cogent advice for the former head of global financial investment and securities goliath Goldman Sachs.

Writing June 25, Stein sends Paulson a “memo” warning him of the nation’s impending financial disasters and highlighting these disturbing facts:

• Standard & Poor’s issued a warning not long ago. The caution was that if the U.S. government did not seriously alter fiscal policy, Treasury bonds would be downgraded to BBB, slightly above junk status, by 2020….The S&P report said further that if the nation did not make serious changes after that, by 2025, Treasuries would be junk bonds, like the bonds of less successful emerging-markets nations….These downgrades would occur because the federal budget deficit and the cumulative national debt would be so high relative to the gross domestic product.
• The annual trade deficit with the rest of the world is approaching $1 trillion….This means we have to transfer ownership of roughly $1 trillion of our assets to foreigners every year to cover our excess of international purchases over sales. But the total worth of all the assets in the United States is not greatly more than $50 trillion…..So, we are basically transferring the value of an average of one of our 50 states to foreign investors every year. This trend looks unsustainable to me (unless we are to revert to being a colony—this time, of China).

When China’s President Hu Jintao visited the United States in April, an editorial cartoonist depicted Hu as surveying his property as he visited Capitol Hill.

Stein prefers such a scenario not become reality. So he also offers his fellow Republican some remedies:

May I respectfully suggest that in this environment, ending the estate tax is not a major sensible priority? May I suggest that having the lowest taxes in 65 years on high-income taxpayers is not really as prudent as it might be if we were not running stupendous deficits, with far worse in the future?

I know you are a Republican, and so am I. Now and then, scornful fellow Republicans ask me what kind of Republican I am, since I’m for higher taxes on the rich. I tell them that I am an Eisenhower Republican, the kind who wants to leave a healthier America to posterity. That includes an economy not headed for the status of a banana republic’s economy.

Stein’s got lots more to say. Read the full article.

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